Market Commentary – July 2026
This post was originally published on this site.
as of 07.31.2026
- Financial markets were volatile in July and results were slightly negative declines. The key themes included: 1) the potential for higher inflation from the Iran conflict, 2) renewed tariff actions, 3) concerns about the magnitude of AI-related spending and ultimate monetization of the technology.
- The S&P 500 index declined slightly — down 0.06% — but the Equal-Weight index was up by 1.01%. The Technology sector led the way lower, and the Nasdaq index was also lower by 3.19%. Small cap stocks, which have done well this year, also declined: the Russell 2000 index declined by 3.02%.
- Microsoft Corp, Amazon.com Inc, and Apple Inc were the top three contributors to return for the S&P 500 in July whereas Micron Technology, Tesla Inc, and Intel Corp were the biggest detractors.
- Under the surface, sharp divergences emerged within the Technology sector. The Nasdaq 100 fell into correction territory (i.e. greater than 10% decline) as semiconductor giants including Nvidia, Intel, Marvell, and Applied Materials all dropped more than 20% at their lows. Mean- while, the rotation out of Technology led to the Equal-Weight index reaching a new high during the month.
- As an example of the volatility noted above, Microsoft added around $450B in market capitalization in a single session on July 30 following its blowout quarterly earnings report. This was the largest one-day market cap gain ever recorded by any company.
- Also noteworthy after the largest IPO ever in June by SpaceX was the largest-ever U.S. listing by a foreign company, SK Hynix. This South Korean memory chip manufacturer raised $26.6B via ADRs on July 10. Its Chairman floated the concept of “memory as a service” as a potential future business model (akin to SaaS, or Software as a Service). The listing underscored investor conviction — at least initially — that AI has structurally broken the memory chip boom-bust cycle, with the CEO stating memory shortages could persist beyond 2030.
- The FOMC left rates unchanged again in July. Kevin Warsh is attempting to talk tough on inflation without taking action and the bond market reacted accordingly. Bond yields rose across the curve, with the two-year Treasury higher by 12 basis points on the month and the thirty-year higher by 32.
- Higher bond yields produced negative total return for the broad market indices. The Bloom-berg Intermediate Agg was lower by 0.71%, while the Municipal Index was down by 1.85%. Higher yields should be welcomed by anyone sitting on cash to invest.
- After declining in May and June as the Iran conflict appeared to come to an end, WTI crude was higher by nearly 22% in July, settling near $85/barrel. The resumption of mutual strikes and blockades provided plenty of drama as the conflict broadened to include strikes by the Houthis.
- The June labor report was disappointing, showing just 57K new jobs created. The prior two months were also revised lower by 74K jobs. Still, the unemployment rate declined to 4.2% since many dropped out of the labor force, whether from lack of finding work or retirements. Weekly state unemployment claims have remained around the 200K level, indicating broad stability in the labor market.
- The Consumer Price Index (CPI) declined 0.4% MoM in June, mostly due to lower gas prices. The Year-over-Year (YoY) measure remains high at 3.5%. Core CPI was flat MoM and up by 2.6% YoY.
- The first look at second quarter GDP was disappointing at 1.5% annualized compared to 2.1% in the first quarter. Looking more closely, the figure was dragged down by a decline in net exports, perhaps owing to a stronger dollar in recent months or perhaps to tariff-related issues. Real final sales to private domestic purchasers, the best indicator of consumer spending, rose by a strong 3.9% annualized, its best showing in more than three years. Business investment spending was also strong again, up 8.4%, owing to the AI spending boom and defense spending.
Index Definitions
The S&P 500 (S&P 500) Total Return is a market capitalization-weighted index composed of the 500 most widely held stocks whose assets and/or revenues are based in the US; it’s often used as a proxy for the U.S. stock market. TR (Total Return) indexes include daily reinvestment of dividends.
MSCI EAFE Total Return Net is the Morgan Stanley Capital International Europe, Australia, and Far East index that is a market-capitalization-weighted index of 21 non-U.S. industrialized country indexes. The index includes net dividends reinvested minus-tax-credit calculations, but subtracts withholding taxes retained at the source for foreigners who do not benefit from a double taxation treaty.
The MSCI Emerging Markets (MSCI EM) Index captures large and mid cap representation across 27 Emerging Markets (EM) countries.
Bloomberg Municipal Bond Index Total Return Index Value Unhedged USD (Municipal Bond Index) covers the US-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
The Bloomberg Intermediate U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market with less than 10 years to maturity. The securitized sector includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. (1) The rate that the borrowing institution pays to the lending institution is determined between the two banks; the weighted average rate for all of these types of negotiations is called the effective federal funds rate.(2) The effective federal funds rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target. All Key Rates and Returns by Index are quoted out of Bloomberg.
The CPI Index represents changes in prices of all goods and services purchases for consumption by urban households. Retail Gas Prices are provided by AAA using data from up to 120,000 retail stations. West Texas Intermediate (WTI) crude oil is a specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude.
Equity Returns by Sector are based on the GICS methodology. Return data are calculated by Bloomberg using constituents and weights as provided by Standard & Poor’s. Returns are cumulative total return for stated period, including reinvestment of dividends.
Chart Definitions
The Services and Manufacturing PMI from the Institute for Supply Management (ISM) is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. The Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries, and Inventories (seasonally adjusted). Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
The PCE Price Index Excluding Food and Energy, also known as the core PCE price index, is released as part of the monthly Personal Income and Outlays report. The core index makes it easier to see the underlying inflation trend by excluding two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index is closely watched by the Federal Reserve as it conducts monetary policy. The PCE price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the United States. Quarterly and annual data are included in the GDP release.
Total Nonfarm, commonly known as Total Nonfarm Payroll, is a measure of the number of U.S. workers in the economy that excludes proprietors, private household employees, unpaid volunteers, farm employees, and the unincorporated self-employed. This measure accounts for approximately 80 percent of the workers who contribute to Gross Domestic Product (GDP).
The diffusion non-farm payrolls chart are based on the percent of industries with employment increasing plus one-half the industries unchanged employment, where 50% indicates an equal balance between industries with increasing and decreasing employment.
Disclaimer
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their financial situation and investment profile. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investments involve risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.
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